QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2018

or

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36522

Investar Holding Corporation

(Exact name of registrant as specified in its charter)

Louisiana

27-1560715

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

7244 Perkins Road, Baton Rouge, Louisiana 70808

(Address of principal executive offices, including zip code)

(225) 227-2222

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer

☐

Accelerated filer

þ

Non-accelerated filer

☐ (Do not check if a smaller reporting company)

Smaller reporting company

☐

Emerging growth company

þ

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date, is as follows: Common stock, $1.00 par value, 9,550,505 shares outstanding as of May 9, 2018.

The Tax Cuts and Jobs Act, enacted on December 22, 2017, required the revaluation of the Company’s deferred tax assets and liabilities as of December 31, 2017 as a result of the lower corporate tax rates to be realized beginning January 1, 2018. The $0.6 million adjustment to retained earnings for the period ended March 31, 2018 represents a reclassification of the tax effects of the Tax Cuts and Jobs Act.

(2)

Represents the impact of adopting Accounting Standards Update (“ASU”) No. 2016-01. See Note 1 to the consolidated financial statements for more information.

See accompanying notes to the consolidated financial statements.

6

INVESTAR HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

Three months ended March 31,

2018

2017

Cash flows from operating activities:

Net income

$

2,402

$

1,864

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

598

376

Provision for loan losses

625

350

Amortization of purchase accounting adjustments

(714

)

—

Net amortization of securities

196

331

Gain on sale of securities, net

—

(106

)

Gain on sale of fixed assets, net

(90

)

(23

)

Gain on sale of other real estate owned, net

—

(5

)

FHLB stock dividend

(45

)

(18

)

Stock-based compensation

240

179

Deferred taxes

922

(141

)

Net change in value of bank owned life insurance

(151

)

(47

)

Amortization of subordinated debt issuance costs

12

—

Unrealized loss on equity securities per ASC 2016-01

17

—

Net change in:

Accrued interest receivable

(20

)

(25

)

Other assets

441

125

Accrued taxes and other liabilities

(414

)

6,272

Net cash provided by operating activities

4,019

9,132

Cash flows from investing activities:

Proceeds from sales of investment securities available for sale

—

10,325

Funds invested in securities available for sale

(22,739

)

(26,577

)

Proceeds from maturities, prepayments and calls of investment securities available for sale

5,560

5,944

Proceeds from maturities, prepayments and calls of investment securities held to maturity

259

421

Purchase of equity securities

(905

)

(940

)

Net increase in loans

(14,413

)

(8,881

)

Proceeds from sales of other real estate owned

—

25

Proceeds from the sales of fixed assets

—

291

Purchases of other real estate owned

(225

)

—

Purchases of fixed assets

(1,089

)

(346

)

Distributions from investments

6

—

Net cash used in investing activities

(33,546

)

(19,738

)

7

INVESTAR HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(Amounts in thousands)

(Unaudited)

Cash flows from financing activities:

Net increase (decrease) in customer deposits

1,495

(39,233

)

Net decrease in repurchase agreements

(882

)

(2,726

)

Net decrease in short-term FHLB advances

(8,500

)

(5,000

)

Proceeds from long-term FHLB advances

45,000

5,000

Repayment of long-term FHLB advances

(16,100

)

(390

)

Cash dividends paid on common stock

(303

)

(87

)

Proceeds from public offering of common stock, net of issuance costs

—

32,553

Proceeds from stock options and warrants exercised

172

473

Payments to repurchase common stock

(674

)

—

Proceeds from other borrowings

—

78

Repayment of other borrowings

—

(1,000

)

Proceeds from subordinated debt, net of issuance costs

—

18,133

Net cash provided by financing activities

20,208

7,801

Net decrease in cash and cash equivalents

(9,319

)

(2,805

)

Cash and cash equivalents, beginning of period

30,421

29,448

Cash and cash equivalents, end of period

$

21,102

$

26,643

See accompanying notes to the consolidated financial statements.

8

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements of Investar Holding Corporation (the “Company”) have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include information or footnotes necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with GAAP. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for the three month period ended March 31, 2018 are not necessarily indicative of the results that may be expected for the entire fiscal year. These statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2017, including the notes thereto, which were included as part of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 16, 2018.

Nature of Operations

Investar Holding Corporation, headquartered in Baton Rouge, Louisiana, provides full banking services, excluding trust services, through its wholly-owned banking subsidiary, Investar Bank (the “Bank”), a Louisiana-chartered bank. The Company’s primary market is South Louisiana. At March 31, 2018, the Company operated 20 full service banking offices located throughout its market and had 251 employees.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences could be material.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowance for loan losses may change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.

Other estimates that are susceptible to significant change in the near term relate to the determination of other-than-temporary impairments of securities and the fair value of financial instruments.

Investment Securities

The Company’s investments in securities are accounted for in accordance with applicable guidance contained in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), which requires the classification of securities into one of the following categories:

•

Securities to be held to maturity (“HTM”): bonds, notes, and debentures for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for premiums and discounts that are recognized in interest income using the interest method over the period to maturity.

•

Securities available for sale (“AFS”): available for sale securities consist of bonds, notes, and debentures that are available to meet the Company’s operating needs. These securities are reported at fair value.

9

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Unrealized holding gains and losses, net of tax, on available for sale debt securities are reported as a net amount in other comprehensive income. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Realized gains and losses on the sale of debt securities are determined using the specific-identification method.

The Company follows FASB guidance related to the recognition and presentation of other-than-temporary impairment. The guidance specifies that if an entity does not have the intent to sell a debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When an entity does not intend to sell the security, and it is more likely than not that the entity will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.

Loans

The Company’s loan portfolio categories include real estate, commercial and consumer loans. Real estate loans are further categorized into construction and development, 1-4 family residential, multifamily, farmland and commercial real estate loans. The consumer loan category includes loans originated through indirect lending. Indirect lending, which is lending initiated through third-party business partners, is largely comprised of loans made through automotive dealerships.

Loans for which management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are stated at unpaid principal balances, adjusted by an allowance for loan losses. Interest on loans is calculated by using the simple interest method on daily balances of the principal amount outstanding. Loans are ordinarily placed on nonaccrual when a loan is specifically determined to be impaired or when principal or interest is delinquent for 90 days or more; however, management may elect to continue the accrual when the estimated net realizable value of collateral is sufficient to cover the principal balance and the accrued interest. Any unpaid interest previously accrued on nonaccrual loans is reversed from income. Interest income, generally, is not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are applied as a reduction of the loan principal balance. Interest income on other nonaccrual loans is recognized only to the extent of interest payments received. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period of repayment performance by the borrower.

The Company considers a loan to be impaired when, based upon current information and events, it believes it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. The Company’s impaired loans include troubled debt restructurings and performing and non-performing loans for which full payment of principal or interest is not expected. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. The Company calculates an allowance required for impaired loans based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of its collateral. If the recorded investment in the impaired loan exceeds the measure of fair value, a valuation allowance is required as a component of the allowance for loan losses. Changes to the valuation allowance are recorded as a component of the provision for loan losses.

The Company follows the FASB accounting guidance on sales of financial assets, which includes participating interests in loans. For loan participations that are structured in accordance with this guidance, the sold portions are recorded as a reduction of the loan portfolio. Loan participations that do not meet the criteria are accounted for as secured borrowings.

Allowance for Loan Losses

The adequacy of the allowance for loan losses is determined in accordance with U.S. GAAP. The allowance for loan losses is estimated through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the loan balance is uncollectable. Subsequent recoveries, if any, are credited to the allowance.

10

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The allowance is an amount that management believes will be adequate to absorb probable losses inherent in the loan portfolio as of the balance sheet date based on evaluations of the collectability of loans and prior loan loss experience. The evaluations take into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and current economic conditions that may affect the borrower’s ability to pay. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. Credits deemed uncollectible are charged to the allowance. Provisions for loan losses and recoveries on loans previously charged off are adjusted to the allowance. Past due status is determined based on contractual terms.

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. Based on management’s review and observations made through qualitative review, management may apply qualitative adjustments to determine loss estimates at a group and/or portfolio segment level as deemed appropriate. Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in its portfolio and portfolio segments. The Company utilizes an internally developed model that requires judgment to determine the estimation method that fits the credit risk characteristics of the loans in its portfolio and portfolio segments. Qualitative and environmental factors that may not be directly reflected in quantitative estimates include: asset quality trends, changes in loan concentrations, new products and process changes, changes and pressures from competition, changes in lending policies and underwriting practices, trends in the nature and volume of the loan portfolio, changes in experience and depth of lending staff and management and national and regional economic trends. Changes in these factors are considered in determining changes in the allowance for loan losses. The impact of these factors on the Company’s qualitative assessment of the allowance for loan losses can change from period to period based on management’s assessment of the extent to which these factors are already reflected in historic loss rates. The uncertainty inherent in the estimation process is also considered in evaluating the allowance for loan losses.

In the ordinary course of business, the Bank enters into commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. The credit risk associated with these commitments is evaluated in a manner similar to the allowance for loan losses. The reserve for unfunded lending commitments is included in other liabilities in the balance sheet. At March 31, 2018 and December 31, 2017 the reserve for unfunded loan commitments was $40,000 and $32,000, respectively.

Acquisition Accounting

Acquisitions are accounted for under the purchase method of accounting. Purchased assets and assumed liabilities are recorded at their respective acquisition date fair values, and identifiable intangible assets are recorded at fair value. If the consideration given exceeds the fair value of the net assets received, goodwill is recognized. If the fair value of the net assets received exceeds the consideration given, a bargain purchase gain is recognized. Fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available.

Purchased loans acquired in a business combination are recorded at their estimated fair value as of the acquisition date. The fair value of loans acquired is determined using a discounted cash flow model based on assumptions regarding the amount and timing of principal and interest prepayments, estimated payments, estimated default rates, estimated loss severity in the event of defaults, and current market rates. Estimated credit losses are included in the determination of fair value; therefore, an allowance for loan losses is not recorded on the acquisition date. The fair value adjustment is amortized over the life of the loan using the effective interest method, except for those loans accounted for under ASC Topic 310-30, discussed below.

The Company accounts for acquired impaired loans under ASC Topic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality (“ASC 310-30”). An acquired loan is considered impaired when there is evidence of credit deterioration since origination and it is probable, at the date of acquisition, that we will be unable to collect all contractually required payments. ASC 310-30 prohibits the carryover of an allowance for loan losses for acquired impaired loans. Over the life of the acquired loans, we continually estimate the cash flows expected to be collected on individual loans or on pools of loans sharing common risk characteristics. As of the end of each fiscal quarter, we evaluate the present value of the acquired loans using the effective interest rates. For any increases in cash flows expected to be collected, we adjust the amount of accretable yield recognized on a prospective basis over the loan’s or pool’s remaining life, while we recognize a provision for loan loss in the consolidated statement of operations if the cash flows expected to be collected have decreased.

11

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Servicing Rights

Primary servicing rights represent the Company’s right to service consumer automobile loans for third-party whole-loan sales and loans sold as participations. Primary servicing involves the collection of payments from individual borrowers and the distribution of these payments to the investors.

The Company capitalizes the value expected to be realized from performing specified automobile servicing activities for others as automobile servicing rights (“ASRs”) when the expected future cash flows from servicing are projected to be more than adequate compensation for such activities. These capitalized servicing rights are purchased or retained upon sale of consumer automobile loans.

The Company measures all consumer automobile servicing assets and liabilities at fair value. The Company defines servicing rights based on both the availability of market inputs and the manner in which the Company manages the risks of servicing assets and liabilities. The Company leverages all available relevant market data to determine the fair value of recognized servicing assets and liabilities.

The Company calculates the fair value of ASRs using various assumptions including future cash flows, market discount rates, expected prepayments, servicing costs and other factors. A significant change in prepayments of loans in the servicing portfolio could result in significant changes in the valuation adjustments, thus creating potential volatility in the carrying amount of ASRs.

For the three months ended March 31, 2018 and 2017, expected future cash flows from ASRs approximated adequate compensation for such activities. Accordingly, the Company has not recorded an asset or liability. There were no loan sales during the three months ended March 31, 2018 or 2017.

Reclassifications

Certain reclassifications have been made to the 2017 financial statements to be consistent with the 2018 presentation, if applicable.

Concentrations of Credit Risk

The Company’s loan portfolio consists of the various types of loans described in Note 5. Loans and Allowance for Loan Losses. Real estate or other assets secure most loans. The majority of loans have been made to individuals and businesses in the Company’s market of South Louisiana. Customers are dependent on the condition of the local economy for their livelihoods and servicing their loan obligations. The Company does not have any significant concentrations in any one industry or individual customer.

Tax Cuts and Jobs Act

Public law No. 115-97, known as the Tax Cuts and Jobs Act (the “Tax Act”), enacted on December 22, 2017, reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. Also on December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for tax effects of the Tax Act. SAB 118 provides a measurement period of up to one year from the enactment date to complete the accounting. Any adjustments during this measurement period will be included in net earnings from continuing operations as an adjustment to income tax expense in the reporting period when such adjustments are determined. Based on the information available and current interpretation of the rules, the Company recorded the impact of the reduction in the corporate tax rate and remeasurement of certain deferred tax assets and liabilities. The amount recorded in the fourth quarter of 2017 related to the remeasurement of the Company’s deferred tax balance and resulted in additional income tax expense of $0.3 million. An additional $0.6 million was expensed in the first quarter of 2018 due to the remeasurement of the Company’s deferred tax balance. The final impact of the Tax Act may differ from these recorded amounts based on a number of factors, including changes in management’s interpretations and assumptions, the completion of the Company’s 2017 consolidated tax return, as well as new guidance that may be issued by the Internal Revenue Service.

Accounting Standards Adopted in 2018

FASB ASC Topic 230 “Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments” Update No. 2016-15 (“ASU 2016-15”). The FASB issued ASU 2016-15 in August 2016. The amendments in the ASU address eight specific cash flow issues with the objective of reducing the existing diversity in practice, as the issues are either unclear or do not have specific guidance under current GAAP. ASU 2016-15 became effective for the Company on January 1, 2018 and did not have a material impact on the Company’s consolidated financial statements.

12

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

FASB ASC Topic 825 “Financial Instruments – Overall” Update No. 2016-01 (“ASU 2016-01”). ASU 2016-01 makes targeted amendments to the guidance for recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 requires equity investments, other than equity method investments, to be measured at fair value with changes in fair value recognized in net income. The ASU requires a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption to reclassify the cumulative change in fair value of equity securities previously recognized in accumulated other comprehensive income (AOCI). ASU 2016-01 became effective for the Company on January 1, 2018. The adoption of the guidance resulted in an insignificant cumulative-effect adjustment that decreased retained earnings, with offsetting related adjustments to deferred taxes and AOCI. The adoption of this ASU also resulted in equity securities previously classified as available for sale securities to be classified as equity securities at fair value in the Company’s March 31, 2018 Consolidated Balance Sheet. ASU 2016-01 also emphasizes the existing requirement to use exit prices to measure fair value for disclosure purposes and clarifies that entities should not make use of a practicability exception in determining the fair value of loans. Accordingly, we refined the calculation used to determine the disclosed fair value of our loans held for investment portfolio as part of adopting this standard. The refined calculation did not have a significant impact on our fair value disclosures. See Note 9. Fair Value of Financial Instruments.

As a result of the adoption of ASU 2016-01, $1.4 million of equity securities was reclassed from available for sale securities to equity securities. At March 31, 2018, equity securities includes $1.4 million of exchange-traded equity securities that are measured at fair value with changes in fair value recognized in net income. The remaining balance of equity securities at March 31, 2018 consists of stock in correspondent banks and is measured at cost, adjusted for any observable market transactions less any impairment. ASU 2016-01 also requires that other investments previously accounted for using the cost method be measured at fair value with changes in fair value recognized in net income. These investments, which had a $1.3 million balance at March 31, 2018, are included in other assets in the consolidated balance sheet and represent investments in small business investment companies without readily determinable fair values. These investments are measured at fair value using the net asset value of the investment and any changes in fair value are recognized in net income.

FASB ASC Topic 606 “Revenue from Contracts with Customers” Update No. 2014-09 (“ASU 2014-09”). ASU 2014-09 was effective for the Company on January 1, 2018. ASU 2014-09 amends existing guidance related to revenue from contracts with customers by (i) creating a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revising when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as other real estate owned (“OREO”). The Company adopted ASU 2014-09 using the modified retrospective method applied to all contracts not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the new guidance while prior period amounts continue to be reported in accordance with legacy GAAP. The adoption of ASU 2014-09 did not result in a significant change to the accounting for any in-scope revenue streams. As such, no cumulative effect adjustment was recorded. The majority of the Company’s revenues comes from interest income from loans and securities, which falls outside the scope of ASU 2014-09. The Company’s services that fall within the scope of ASU 2014-09 are primarily included within noninterest income in the consolidated income statements and are recognized as revenue as the Company satisfies its obligation to the customer. Services within the scope of the new guidance include service charges on deposit accounts, interchange fees and other fees, and the sale of OREO. The adoption of this ASU was not significant to the Company and had no material effect on how the Company recognizes revenue nor did it result in any presentation changes to the consolidated financial statements.

Recent Accounting Pronouncements

FASB ASC Topic 815 “Derivatives and Hedging” Update No. 2017-12. The FASB issued ASU No. 2017-12 in August 2017. The ASU amends the hedge accounting model in Topic 815 to enable entities to better portray the economics of their risk management activities in the financial statements and enhance the transparency and understandability of hedge results. The amendments expand an entity’s ability to hedge nonfinancial and financial risk components and reduce complexity in fair value hedges of interest rate risk. The guidance eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. This amended guidance is effective for the Company on January 1, 2019, and, given the current level of derivatives designated as hedges, is not expected to have a material impact on our consolidated operating results or financial condition.

13

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

FASB ASC Subtopic 310-20 “Receivables – Nonrefundable Fees and Other Costs, Premium Amortization on Purchased Callable Debt Securities” Update No. 2017-08. The FASB issued ASU No. 2017-08 in March 2017. The amendments in the ASU shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. Update 2017-08 will be effective for the Company beginning January 1, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is assessing the impact of ASU 2017-08 on its accounting and disclosures.

FASB ASC Topic 350 “Intangibles – Goodwill and Other: Simplifying the Test for Goodwill Impairment” Update No. 2017-04. The FASB issued ASU No. 2017-04 in January 2017. The ASU simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Therefore, any carrying amount which exceeds the reporting unit’s fair value, up to the amount of goodwill recorded, will be recognized as an impairment loss. ASU 2017-04 will be effective for the Company on January 1, 2020. The amendments will be applied prospectively on or after the effective date. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Based on recent goodwill impairments tests, which did not require the application of Step 2, the Company does not expect the adoption of this ASU to have an immediate impact.

FASB ASC Topic 326 “Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments” Update No. 2016-13. The FASB issued ASU No. 2016-13 in June 2016.The amendments introduce an impairment model that is based on expected credit losses, rather than incurred losses, to estimate credit losses on certain types of financial instruments (e.g., loans and held-to-maturity securities), including certain off-balance sheet financial instruments (e.g., loan commitments). The expected credit losses should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments, over the contractual term. Financial instruments with similar risk characteristics may be grouped together when estimating expected credit losses. The ASU also amends the current AFS security impairment model for debt securities. The new model will require an estimate of expected credit losses when the fair value is below the amortized cost of the asset through the use of an allowance to record estimated credit losses (and subsequent recoveries). Non-credit related losses will continue to be recognized through other comprehensive income. In addition, the amendments provide for a simplified accounting model for purchased financial assets with a more-than-insignificant amount of credit deterioration since their origination. The initial estimate of expected credit losses would be recognized through an allowance for loan losses with an offset (i.e., increase) to the cost basis of the related financial asset at acquisition.

ASU 2016-13 will be effective for the Company beginning January 1, 2020. The amendments will be applied through a modified-retrospective approach, resulting in a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. A prospective transition approach is required for debt securities for which other-than-temporary impairment had been recognized before the effective date. Amounts previously recognized in accumulated other comprehensive income as of the date of adoption that relate to improvements in cash flows expected to be collected should continue to be accreted into income over the remaining life of the asset. Recoveries of amounts previously written off relating to improvements in cash flows after the date of adoption should be recorded in earnings when received. Management is currently evaluating the potential impact of ASU 2016-13 on the Company’s consolidated financial statements.

NOTE 2. BUSINESS COMBINATIONS

Citizens Bancshares, Inc.

On July 1, 2017, the Company completed the acquisition of Citizens Bancshares, Inc. (“Citizens”) and its wholly-owned subsidiary, Citizens Bank, located in Evangeline Parish, Louisiana. The Company acquired 100% of Citizens’ outstanding common shares for an aggregate amount of cash consideration equal to $45.8 million, or approximately $419.20 per share. The acquisition of Citizens expands the Company’s branch footprint in Louisiana and increases the core deposit base to help position the Company to continue to grow. After fair value adjustments, including total adjustments of $32,000 to bank premises and equipment, other assets, and other liabilities recorded in the three months ended March 31, 2018, the acquisition added $251 million in total assets, $129 million in loans, and $212 million in deposits. As consideration paid was in excess of the net fair value of acquired assets, the Company recorded $9.1 million of goodwill.

14

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The table below shows the allocation of the consideration paid for Citizens’ common equity to the acquired identifiable assets and liabilities assumed and the goodwill generated from the transaction (dollars in thousands). The fair values listed below, primarily related to loans, are subject to refinement for up to one year after the closing date of the acquisition as additional information becomes available.

Purchase price:

Cash paid

$

45,800

Fair value of assets acquired:

Cash and cash equivalents

44,565

Investment securities

69,912

Loans

129,181

Bank premises and equipment

3,307

Core deposit intangible asset

1,462

Other assets

2,223

Total assets acquired

250,650

Fair value of liabilities acquired:

Deposits

212,228

Other liabilities

1,675

Total liabilities assumed

213,903

Fair value of net assets acquired

36,747

Goodwill

$

9,053

Fair value adjustments to assets acquired and liabilities assumed are generally amortized using the effective yield method over periods consistent with the average life, useful life and/or contractual term of the related assets and liabilities.

The fair value of net assets acquired includes a fair value adjustment to loans as of the acquisition date. The adjustment for the acquired loan portfolio is based on current market interest rates and the Company’s initial evaluation of credit losses identified.

The tables below present information about the loans acquired with deteriorated credit quality from Citizens as of the date of acquisition (dollars in thousands).

Purchase Credit Impaired

Contractually required principal

$

5,123

Non-accretable difference

(700

)

Cash flows expected to be collected

4,423

Accretable yield

—

Fair value of acquired loans

$

4,423

15

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

BOJ Bancshares, Inc.

On December 1, 2017, the Company completed the acquisition of BOJ Bancshares, Inc. (“BOJ”) and its wholly-owned subsidiary, The Highlands Bank, located in East Feliciana Parish, Louisiana. The Company acquired 100% of BOJ’s outstanding common shares for an aggregate merger consideration consisting of $3.95 million in cash, and an aggregate of 799,559 shares of the Company’s common stock, for a total of approximately $22.7 million. As with the Citizens acquisition, the acquisition of BOJ expands the Company’s branch footprint in Louisiana, allowing us to serve more customers in our surrounding market areas. After fair value adjustments, including total adjustments of $0.3 million to loans, bank premises and equipment, other assets, and deposits recorded in the three months ended March 31, 2018, the acquisition added $152 million in total assets, $102 million in loans, and $126 million in deposits. As consideration paid was in excess of the net fair value of acquired assets, the Company recorded $5.7 million of goodwill.

The table below shows the allocation of the consideration paid for BOJ’s common equity to the acquired identifiable assets and liabilities assumed and the goodwill generated from the transaction (dollars in thousands). The fair values listed below, primarily related to loans and deferred tax assets and liabilities, are subject to refinement for up to one year after the closing date of the acquisition as additional information becomes available.

Purchase price:

Cash paid

$

3,950

Stock Issued

18,749

Fair value of assets acquired:

Cash and cash equivalents

26,438

Investment securities

16,194

Loans

102,393

Bank premises and equipment

3,725

Core deposit intangible asset

1,018

Other assets

2,375

Total assets acquired

152,143

Fair value of liabilities acquired:

Deposits

125,788

FHLB advances

5,956

Trust preferred

2,178

Other liabilities

1,209

Total liabilities assumed

135,131

Fair value of net assets acquired

17,012

Goodwill

$

5,687

Fair value adjustments to assets acquired and liabilities assumed are generally amortized using the effective yield method over periods consistent with the average life, useful life and/or contractual term of the related assets and liabilities.

The fair value of net assets acquired includes a fair value adjustment to loans as of the acquisition date. The adjustment for the acquired loan portfolio is based on current market interest rates, and the Company’s initial evaluation of credit losses identified.

16

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The tables below present information about the loans acquired with deteriorated credit quality from BOJ as of the date of acquisition (dollars in thousands).

Purchase Credit Impaired

Contractually required principal

$

4,557

Non-accretable difference

(671

)

Cash flows expected to be collected

3,886

Accretable yield

—

Fair value of acquired loans

$

3,886

Supplemental Unaudited Pro Forma Information

The following unaudited supplemental pro forma information is presented to show estimated results assuming Citizens and BOJ were acquired as of January 1, 2017. These unaudited pro forma results are not necessarily indicative of the operating results that the Company would have achieved had it completed the acquisitions as of January 1, 2017 and should not be considered representative of future operating results. The pro forma net income for the three months ended March 31, 2018 excludes the tax-affected amount of $0.9 million of acquisition expenses recorded in noninterest expense by the Company. The pro forma net income for the three months ended March 31, 2017 excludes the tax-affected amount of $0.1 million of acquisition expenses recorded in noninterest expense by the Company and Citizens.

Unaudited Pro Forma for the

Three months ended March 31,

(dollars in thousands)

2018

2017

Interest income

$

17,178

$

13,546

Noninterest income

1,072

1,262

Net income

3,285

2,656

In the three months ended March 31, 2018, the acquired companies have added approximately $3.6 million, $0.4 million, and $0.3 million to interest income, noninterest income, and net income, respectively.

Acquisition Expense

Acquisition related costs of $1.1 million are included in acquisition expenses in the accompanying consolidated statements of income for the three month period ended March 31, 2018. These costs include system conversion and integrating operations charges as well as legal and consulting expenses.

17

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 3. EARNINGS PER SHARE

The following is a summary of the information used in the computation of basic and diluted earnings per share for the three months ended March 31, 2018 and 2017 (in thousands, except share data).

Three months ended March 31,

2018

2017

Earnings per common share - basic

Net income allocated to common shareholders

$

2,370

$

1,864

Weighted-average basic shares outstanding

9,513,332

7,205,942

Basic earnings per common share

$

0.25

$

0.26

Earnings per common share - diluted

Net income allocated to common shareholders

$

2,370

$

1,864

Weighted-average basic shares outstanding

9,513,332

7,205,942

Dilutive effect of securities

96,271

70,927

Total weighted average diluted shares outstanding

9,609,603

7,276,869

Diluted earnings per common share

$

0.25

$

0.26

18

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4. INVESTMENT SECURITIES

The amortized cost and approximate fair value of investment securities classified as available for sale are summarized below as of the dates presented (dollars in thousands).

Amortized Cost

Gross

Unrealized

Gains

GrossUnrealizedLosses

Fair

Value

March 31, 2018

Obligations of U.S. government agencies and corporations

$

57,864

$

37

$

(1,054

)

$

56,847

Obligations of state and political subdivisions

35,485

4

(768

)

34,721

Corporate bonds

18,404

105

(400

)

18,109

Residential mortgage-backed securities

120,841

49

(2,619

)

118,271

Commercial mortgage-backed securities

3,631

—

(131

)

3,500

Total

$

236,225

$

195

$

(4,972

)

$

231,448

Amortized Cost

GrossUnrealizedGains

GrossUnrealizedLosses

FairValue

December 31, 2017

Obligations of U.S. government agencies and corporations

$

52,889

$

24

$

(697

)

$

52,216

Obligations of state and political subdivisions

35,572

87

(422

)

35,237

Corporate bonds

16,428

112

(330

)

16,210

Residential mortgage-backed securities

110,690

58

(1,270

)

109,478

Commercial mortgage-backed securities

3,651

—

(70

)

3,581

Equity securities

847

24

(29

)

842

Total

$

220,077

$

305

$

(2,818

)

$

217,564

Proceeds from sales of investment securities available for sale and gross gains and losses are summarized below for the periods presented (dollars in thousands).

Three months ended March 31,

2018

2017

Proceeds from sale

$

—

$

10,325

Gross gains

$

—

$

107

Gross losses

$

—

$

(1

)

The amortized cost and approximate fair value of investment securities classified as held to maturity are summarized below as of the dates presented (dollars in thousands).

Amortized Cost

GrossUnrealizedGains

GrossUnrealizedLosses

FairValue

March 31, 2018

Obligations of state and political subdivisions

$

11,752

$

9

$

(83

)

$

11,678

Residential mortgage-backed securities

5,975

—

(174

)

5,801

Total

$

17,727

$

9

$

(257

)

$

17,479

Amortized Cost

GrossUnrealizedGains

GrossUnrealizedLosses

FairValue

December 31, 2017

Obligations of state and political subdivisions

$

11,861

$

9

$

(15

)

$

11,855

Residential mortgage-backed securities

6,136

4

(48

)

6,092

Total

$

17,997

$

13

$

(63

)

$

17,947

19

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Securities are classified in the consolidated balance sheets according to management’s intent. The Company had no securities classified as trading as of March 31, 2018 or December 31, 2017.

The aggregate fair values and aggregate unrealized losses on securities whose fair values are below book values are summarized in the tables below. Unrealized losses are generally due to changes in interest rates. The Company has the intent to hold these securities either until maturity or a forecasted recovery, and it is more likely than not that the Company will not have to sell the securities before the recovery of their cost basis. Due to the nature of the investment, current market prices, and a rising interest rate environment, these unrealized losses are considered a temporary impairment of the securities.

The number of securities available for sale, fair value, and unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are summarized below as of the dates presented (dollars in thousands).

Less than 12 Months

12 Months or More

Total

Count

Fair Value

Unrealized

Losses

Fair Value

UnrealizedLosses

Fair Value

UnrealizedLosses

March 31, 2018

Obligations of U.S. government agencies and corporations

100

$

41,230

$

(725

)

$

11,776

$

(329

)

$

53,006

$

(1,054

)

Obligations of state and political subdivisions

64

23,914

(372

)

9,872

(396

)

33,786

(768

)

Corporate bonds

24

2,776

(22

)

6,219

(378

)

8,995

(400

)

Residential mortgage-backed securities

187

82,818

(1,672

)

27,223

(947

)

110,041

(2,619

)

Commercial mortgage-backed securities

6

1,938

(45

)

1,562

(86

)

3,500

(131

)

Total

381

$

152,676

$

(2,836

)

$

56,652

$

(2,136

)

$

209,328

$

(4,972

)

Less than 12 Months

12 Months or More

Total

Count

Fair Value

UnrealizedLosses

Fair Value

UnrealizedLosses

Fair Value

UnrealizedLosses

December 31, 2017

Obligations of U.S. government agencies and corporations

88

$

34,281

$

(444

)

$

11,119

$

(253

)

$

45,400

$

(697

)

Obligations of state and political subdivisions

57

12,315

(77

)

9,930

(345

)

22,245

(422

)

Corporate bonds

20

1,116

(6

)

6,273

(324

)

7,389

(330

)

Residential mortgage-backed securities

159

71,893

(729

)

28,410

(541

)

100,303

(1,270

)

Commercial mortgage-backed securities

6

1,979

(12

)

1,602

(58

)

3,581

(70

)

Equity securities

1

—

—

478

(29

)

478

(29

)

Total

331

$

121,584

$

(1,268

)

$

57,812

$

(1,550

)

$

179,396

$

(2,818

)

20

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The number of securities held to maturity, fair value, and unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are summarized below as of the dates presented (dollars in thousands).

Less than 12 Months

12 Months or More

Total

Count

Fair Value

UnrealizedLosses

Fair Value

UnrealizedLosses

Fair Value

UnrealizedLosses

March 31, 2018

Obligations of state and political subdivisions

1

$

5,829

$

(83

)

$

—

$

—

$

5,829

$

(83

)

Residential mortgage-backed securities

9

3,354

(75

)

2,447

(99

)

5,801

(174

)

Total

10

$

9,183

$

(158

)

$

2,447

$

(99

)

$

11,630

$

(257

)

Less than 12 Months

12 Months or More

Total

Count

Fair Value

UnrealizedLosses

Fair Value

UnrealizedLosses

Fair Value

UnrealizedLosses

December 31, 2017

Obligations of state and political subdivisions

1

$

6,007

$

(15

)

$

—

$

—

$

6,007

$

(15

)

Residential mortgage-backed securities

6

1,601

(3

)

2,522

(45

)

4,123

(48

)

Total

7

$

7,608

$

(18

)

$

2,522

$

(45

)

$

10,130

$

(63

)

The unrealized losses in the Company’s investment portfolio, caused by interest rate increases, are not credit issues and the Company does not intend to sell the securities. Furthermore, it is not more likely than not that the Company will be required to sell the securities before recovery of their amortized cost bases. The Company does not consider these securities to be other-than-temporarily impaired at March 31, 2018 or December 31, 2017.

The amortized cost and approximate fair value of debt securities, by contractual maturity (including mortgage-backed securities), are shown below as of the dates presented (dollars in thousands). Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Amortized

Cost

Fair

Value

AmortizedCost

FairValue

March 31, 2018

Due within one year

$

3,513

$

3,503

$

720

$

721

Due after one year through five years

14,705

14,602

3,245

3,250

Due after five years through ten years

31,055

30,369

1,875

1,878

Due after ten years

186,952

182,974

11,887

11,630

Total debt securities

$

236,225

$

231,448

$

17,727

$

17,479

AmortizedCost

FairValue

AmortizedCost

FairValue

December 31, 2017

Due within one year

$

1,319

$

1,319

$

720

$

721

Due after one year through five years

15,379

15,331

3,245

3,249

Due after five years through ten years

28,242

27,833

1,875

1,878

Due after ten years

174,290

172,239

12,157

12,099

Total debt securities

$

219,230

$

216,722

$

17,997

$

17,947

At March 31, 2018, securities with a carrying value of $94.3 million were pledged to secure certain deposits, borrowings, and other liabilities, compared to $90.8 million in pledged securities at December 31, 2017.

21

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 5. LOANS AND ALLOWANCE FOR LOAN LOSSES

The Company’s loan portfolio consists of the following categories of loans as of the dates presented (dollars in thousands).

March 31, 2018

December 31, 2017

Construction and development

$

162,337

$

157,667

1-4 Family

277,978

276,922

Multifamily

54,504

51,283

Farmland

20,725

23,838

Commercial real estate

554,155

537,364

Total mortgage loans on real estate

1,069,699

1,047,074

Commercial and industrial

135,965

135,392

Consumer

67,286

76,313

Total loans

$

1,272,950

$

1,258,779

Unamortized premiums and discounts on loans, included in the total loans balances above, were $2.5 million and $2.6 million at March 31, 2018 and December 31, 2017, respectively.

Nonaccrual and Past Due Loans

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. In determining whether or not a borrower may be unable to meet payment obligations for each class of loans, we consider the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regard to our collateral position. Regulatory provisions would typically require the placement of a loan on nonaccrual status if (i) principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection or (ii) full payment of principal and interest is not expected. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on nonaccrual loans is recognized only to the extent that cash payments are received in excess of principal due. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period (at least six months) of repayment performance by the borrower.

The table below provides an analysis of the aging of loans as of the dates presented (dollars in thousands).

March 31, 2018

Accruing

Current

30-59 Days Past Due

60-89 Days Past

90 Days or More Past Due

Nonaccrual

Total Past

Due &

Nonaccrual

Acquired Impaired Loans

Total Loans

Construction and development

$

161,575

$

610

$

53

$

—

$

44

$

707

$

55

$

162,337

1-4 Family

275,587

424

110

—

524

1,058

1,333

277,978

Multifamily

53,676

—

—

—

—

—

828

54,504

Farmland

18,156

—

—

57

—

57

2,512

20,725

Commercial real estate

551,160

245

—

—

675

920

2,075

554,155

Total mortgage loans on real estate

1,060,154

1,279

163

57

1,243

2,742

6,803

1,069,699

Commercial and industrial

133,959

63

76

—

552

691

1,315

135,965

Consumer

65,777

343

73

—

1,090

1,506

3

67,286

Total loans

$

1,259,890

$

1,685

$

312

$

57

$

2,885

$

4,939

$

8,121

$

1,272,950

22

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 31, 2017

Accruing

Current

30-59 Days Past Due

60-89 Days Past

90 Days or More Past Due

Nonaccrual

Total PastDue &Nonaccrual

Acquired Impaired Loans

Total Loans

Construction and development

$

157,123

$

225

$

—

$

—

$

34

$

259

$

285

$

157,667

1-4 Family

273,321

1,396

185

56

478

2,115

1,486

276,922

Multifamily

50,271

—

—

—

—

—

1,012

51,283

Farmland

19,619

—

—

58

—

58

4,161

23,838

Commercial real estate

535,014

107

89

—

67

263

2,087

537,364

Total mortgage loans on real estate

1,035,348

1,728

274

114

579

2,695

9,031

1,047,074

Commercial and industrial

133,009

977

67

—

10

1,054

1,329

135,392

Consumer

74,409

610

152

20

1,118

1,900

4

76,313

Total loans

$

1,242,766

$

3,315

$

493

$

134

$

1,707

$

5,649

$

10,364

$

1,258,779

Credit Quality Indicators

Loans are categorized into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The following definitions are utilized for risk ratings, which are consistent with the definitions used in supervisory guidance:

Pass - Loans not meeting the criteria below are considered pass. These loans have high credit characteristics and financial strength. The borrowers at least generate profits and cash flow that are in line with peer and industry standards and have debt service coverage ratios above loan covenants and our policy guidelines. For some of these loans, a guaranty from a financially capable party mitigates characteristics of the borrower that might otherwise result in a lower grade.

Special Mention - Loans classified as special mention possess some credit deficiencies that need to be corrected to avoid a greater risk of default in the future. For example, financial ratios relating to the borrower may have deteriorated. Often, a special mention categorization is temporary while certain factors are analyzed or matters addressed before the loan is re-categorized as either pass or substandard.

Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower or the liquidation value of any collateral. If deficiencies are not addressed, it is likely that this category of loan will result in the Bank incurring a loss. Where a borrower has been unable to adjust to industry or general economic conditions, the borrower’s loan is often categorized as substandard.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as recorded assets is not warranted. This classification does not mean that the assets have absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off these assets.

23

INVESTAR HOLDING CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The table below presents the Company’s loan portfolio by category and credit quality indicator as of the dates presented (dollars in thousands).